Many owners of farms, grain elevators and other agriculture service properties are understandably dismayed at the recent rise in assessments and property taxes, and it’s no wonder why.; for many property owners, assessments and resulting taxes have increased 35 percent to 50 percent. With profit margins in the agricultural sector under pressure, it is a good time for owners to learn more about how the system works, to reduce property taxes quickly and cost effectively.
Fair Market Value
Property taxes, which provide support for local services like schools and townships, are “ad valorem” or “value” taxes. This means that as wealth increases, so do property taxes. The tax is based upon the fair market value or fair cash value of a property. This is generally construed to mean the price a willing buyer and a willing seller agree on, while not under duress and both with reasonable knowledge of the asset being traded. The value is set at a certain date, and the taxes are collected the following year. The fair market value is generally adjusted by an assessment ratio and further adjusted by an equalization factor, both of which are set by law or regulation. The local tax rate, or the sum of all the tax rates of the various local entities, is then applied to calculate the taxes due. The fair market value determined by the Assessor is the only number in the process that should concern the taxpayer, as the rest is a mechanical exercise that is out of your control and often confusing.
The Importance of Preparing for Assessments
Dates are very important in the process. Based upon the assessment cycle, new assessments are posted after there is a short window to file an appeal – often no more than thirty days after. It’s best practice to do your homework on the Assessor’s Office months before the assessment is published and to engage an appraisal consultant to assist in the process. First, learn the definitions of value that are being used by the Assessor. Then, consider asking these two important questions. First, what improvements are listed in each parcel? Second, what method or methods and accompanying data are used to calculate the value of the property – market sales, cost approach, or income approach? Do not discuss or argue value at this time. Rather, take the information for further study and analysis. The last step is to draw all improvements on a parcel map and indicate age, size, capacity, etc. With this information in hand, you will know if you have a case and you will be ready when the time comes to ask for a lower assessment.
How to Appeal Assessments
Many tax reductions occur through thoughtful and informal discussions with the Assessor. If an informal discussion fails, an appeal can be based upon:
- Correcting the record, eliminating improvements that are obsolete or retired, noting proper age or correcting bushel capacity or other measures of productivity.
- Comparing your assessment on a per unit basis to recent sales of similar properties in close proximity.
- Comparing your assessment on a per unit basis to those of similar nearby properties so that uniformity and fairness is argued.
Farmland is often given preferential treatment based on its ability to produce income rather than fair market value, in which case the Assessor may not be applying definitions or inputs correctly. This not only corrects the value of the farmland but often reduces the contributory value of the improvements.
Throughout this process, we advise an attitude of cooperation toward the Assessor. After all, your standing in the local community is important as is the Assessor’s. Correcting the record, providing accurate data and appropriate appraisal reasoning allows the Assessor to legally help you without the cost of an appeal. An appraisal consultant is very helpful in this process.
Sikich can assist you on a non-contingency, consulting basis. We’ve successfully helped many taxpayers in agriculture significantly lower their obligation at minimal cost, while avoiding a lengthy and expensive appeal process. To learn more on this topic, please look for our seminars and webinars.